Outsourcing Dangerously

Indian cities seem prominent on the list of the world?s riskiest offshore outsourcing locations. Can it change outsourcing decisions?

Written by Pragati Verma

March 16, 2009 01:37 IST

A new threat seems to be on the horizon for the world?s back office. Eight Indian cities figure in the latest list of the 25 most dangerous offshore outsourcing locations of the world, prepared by Brown Wilson Group known for their Black Book of Outsourcing. NCR (Delhi, Gurgaon, Noida) and Mumbai rank among the 10 least secure cities, with NCR at sixth and Mumbai at ninth position. While Chandigarh is the 15th riskiest city, Pune is on 20th position. Bangalore, Hyderabad and Kolkata are not far behind.

The study also suggests that the realities of an unsafe world have fully overrun into outsourcing decisions. ?The risk-reward calculations have irreversibly been changed since the terrorist attacks last year. It will no longer be simply moving to the most cost-effective and efficient location with best skills,? says a recent paper from the group.

Terrrorist threats, coupled with geopolitical and environmental issues seem to be the biggest dangers in Indian cities, according to the Brown Wilson study. In fact, NCR is ranked the riskiest city in terms of ?transnational and geopolitical issues? and second riskiest when it comes to ?terrorist and rebel target threats?. Interestingly, Mumbai ranks highest on ?terrorist threats? though the report claims survey was done a month before the terrorist attacks in the city. Bangalore and Chandigarh are at the bottom of the heap on ?environmental waste and pollution?. In short, Indian cities dominate the list of riskiest places for outsourcing, with the only exception of Bangalore, which has been ranked the second safest after Dublin in Ireland on anti-corruption enforcement.

This survey, which ranks cities not just on their physical security but on other tangible issues like political instability and levels of corruption, has caught many in the Indian outsourcing industry by surprise. It paints a contrasting picture to the results coming from other surveys done till now which have pegged Indian cities as the most popular and favoured outsourcing locations. A KPMG study, for instance, identified Banglore, Mumbai, NCR, Chennai, Pune and Hyderabad as ?emerged destinations?and Ahmedabad, Jaipur and Nagpur among emerging cities globally for the IT and BPO industry. Moody?s economists have also affirmed faith in India remaining a top outsourcing destination.

Few like BDO Seidman reckon that global economic burst, Satyam?s fraud and terrorist attacks are curbing outsourcing to India, but say 50% of CFOs who participated in their survey talked of India as their most common non-US location. Everest, a prominent advisor on outsourcing deals seems to agree. Refusing to comment on the Brown Wilson report, Everest India CEO Gaurav Gupta says, ?Outsourcers will be more cautious and will exercise greater due diligence but India will continue to be the preferred location for outsourcing and offshoring.?Indian providers have demonstrated their disaster management skills and their plans to minimise the impact of disruptions, he reasons.

IT research firm IDC India country manager, Kapil Dev Singh agrees that terror attacks are bound to increase anxiety levels, especially for those who are not exposed to India. Impact, however, is yet to be seen, he adds. The problem, according to him, could be that executives might not be comfortable traveling, even if the ground situation is not so bad.

?Terror is just one of the many factors, but it could tilt the balance in favour of other locations,?he warns. High risk factors in the study might not change an outsourcer?s mind on location of its offshored centre but could push them to ask for details on suppliers crisis, disaster recovery, data transfer, back up, chain of command structures, communications and related planning documents. Hits to major outsourcing hubs will disrupt economies, staffing and operations. This might mean the vendor could be disabled or completely shutdown.

The new equation could push outsourcers to nearshore and sameshore instead of offshore, to begin with. Another survey of chief financial officers from BDO Seidman suggests these perilous times are causing some to consider outsourcing operations to other regions of the United States rather than overseas. The Brown Wilson study predicts that suppliers, particularly Indian mega-suppliers, will find the lack of client nearshore and sameshore options as absolute deal breakers. Already, Indian outsourcers are starting setting up centres in Central and Eastern Europe as well as Latin America to establish data and service centres that diminish the downstream risks of offshoring.

Industry seems more worried about the impact of the financial slowdown than the risk posed by terrorists. ?Geo-political situation might not disturb people so much because of the seriousness of the economic situation,? confirms Gupta of Everest.

25 Riskiest Offshoring locations

• Bogota Columbia

• Bangkok Thailand

• Johannesburg South Africa

• Kuala Lumpur Malaysia

• Kingston Jamaica

• Delhi/Noida/Gurgaon India

• Manila/Cebu/Makita Philippines

• Rio de Janeiro Brazil

• Mumbai India

• Jerusalem Israel

• Curitiba Brazil